Why does the owner want to withhold retainage on pay applications?

Answer: The owner want to withhold retainage on pay applications because many contractors pass down the owner's right to withhold retainage to the subcontractor.

Explanation:

Retainage is agreed part of contract price that is deliberately withheld until the work has been completed to a significant extent to make sure that contractor or subcontractor will satisfy its aloted work and complete the project on time.

Retainage has been in practice since a long time. It was used in construction of the United Kingdom railway system in 1840s.

If one needs to impose retainage on a construction project, then it should be clearly mentioned in the contract.

Retainage is applicable on both subcontracts and prime contracts.